Washington (Platts)--17Nov2008

Higher gas prices and significant technological advances have led to a
dramatic increase in production of unconventional gas resources in recent
years, and that trend is expected to continue unabated, according to a study
to be released in the US on Monday.
By 2020, 69% of US gas production and 43% of Canadian gas will come from
unconventional plays, said the report prepared by energy consultant ICF
International.
To support the production forecast, roughly 300,000 unconventional wells
will have to be drilled, representing an outlay of $560 billion for
unconventional gas drilling and related capital costs.
Previewing the report to the INGAA Foundation, or Interstate Natural Gas
Association of America Foundation, at its annual meeting in Palm Coast,
Florida, on Saturday, ICF analyst Harry Vidas pronounced it "good news for
customers and policy makers," asserting that the findings "show how well the
natural gas industry in the US and Canada has done in recent years stemming
the decline" of conventional gas production.
The outlook is "very optimistic," he continued. And with the tremendous
gains in production from tight gas, coalbed methane and, most significantly,
shale gas, this energy supply "is poised to be a very important part of North
America's energy future."
IFC noted that research and investment into unconventional gas has
increased significantly in recent years due to the higher price environment.
In many cases, the technologies for economic production had already been
developed, while in other cases resources were still in the research stages.
Unconventional gas had been a significant component of US production for
many years, but "its contribution has grown rapidly in recent years," the
report said, pointing to notable growth in production from tight gas
reservoirs in the Rockies and East Texas, coalbed methane in Wyoming and New
Mexico, and shale gas in North Texas and the Mid-Continent.
While tight gas figures to remain the dominant category of unconventional
gas through the study period of 2007-2020, the "most significant" trend, said
ICF, is the "rapid rise" of gas production from shale formations.
"It appears certain that shale gas production will expand in coming
decades, and production will emerge in new regions in the US and Canada."
ICF is forecasting growth in overall North American gas production from
last year's 25 Tcf to 29 Tcf by 2020.
That gain will be "driven by onshore unconventional gas," which is
expected to grow from 42% of total production in 2007 to 64% in 2020 and 72%
in 2030, Vidas told the INGAA Foundation audience.
Total gas resources in North America exceed 2,300 Tcf, said the report,
adding that shale gas accounts for roughly 500 Tcf of recoverable resources
within that total.
For the Lower-48 states, IFC put tight gas at 174 Tcf, coalbed methane at
65 Tcf and shale gas at 385 Tcf.
The consultant sees production from gas shales in the US growing from 1.4
Tcf last year to 4.8 Tcf in 2020, and tight gas production jumping from 5.8
Tcf to 9.2 Tcf over the same span.
ICF said its forecast "may prove to be conservative, especially for gas
shales."
It noted that the size of the recoverable resource base "is large enough
to support higher levels of annual production over the long term if such
production is demanded by the market."
What's more, "it is likely that our forecast of Western Canada is
conservative, given the limited available information on shale plays in
British Columbia."
Also, several emerging shale plays, such as those in the Southeast US and
Rockies, are not included in the report due to scarce data.
The financial crisis and the recent decline in oil and gas prices may
stunt drilling programs, and some producers already have announced significant
cutbacks. "However, the longer-term need for energy in the US and Canada
should be strong enough to support the future levels of gas production
presented here, albeit on a possibly slower pace," said ICF.
The report also cautioned that environmental and regulatory issues may
dampen unconventional gas production efforts. "These include well and
environmental permitting and related costs, land access, water use and
disposal and surface disturbance."
Water use and disposal for fracturing of shale wells has already
emerged as a significant issue, ICF observed, "although, to date, water use
has not significantly restricted development in most shale areas."
--Chris Newkumet, chris_newkumet@platts.com